Insurers must pay third-party compensation despite invalid licences, with liberty to recover from vehicle owners.

Poritosh Biswas was travelling as a pillion rider on motorcycle No. AS-07-M-1301, driven by Srimanta Das, when he sustained injuries in a motor accident on 13.03.2019.

The respondents instituted a claim before the Motor Accident Claims Tribunal No. 2, Kamrup (M), Guwahati, in MAC Case No. 2549/2019.

By judgment and award dated 19.08.2024, the Tribunal found that the motorcycle was insured but that its driver did not possess a valid driving licence, constituting a breach of the insurance policy.

Nevertheless, it directed the Insurance Company to pay the compensation to the claimants and recover the amount from the motorcycle owner.

The Insurance Company challenged the pay-and-recover direction under Section 173 of the Motor Vehicles Act, 1988.

Whether, despite the driver’s absence of a valid driving licence and the consequent breach of the insurance policy, the Insurance Company could be directed to first pay the compensation to the claimants and thereafter recover it from the vehicle owner.

Whether the Motor Accident Claims Tribunal lacked jurisdiction to apply the pay-and-recover principle, as contended on the basis of MAC Appeal No. 55/2014 and National Insurance Co. Ltd. v. Baljit Kaur.

Section 173 of the Motor Vehicles Act, 1988 provides for an appeal against an award of the Motor Accident Claims Tribunal.

A breach arising from the offending driver’s failure to possess a valid driving licence does not necessarily absolve the insurer from satisfying the third-party compensation award in the first instance.

Applying the pay-and-recover principle, the insurer may be directed to pay the victim and subsequently recover the amount from the owner responsible for the policy breach.

The Court relied on Shamanna v. Oriental Insurance Co. Ltd., as followed in Parminder Singh v. New India Assurance Co. Ltd., (2019) 7 SCC 217, which recognised pay and recovery where the driver lacked a valid licence.

It also relied on K. Nagendra v. New India Insurance Co. Ltd., 2025 SCC OnLine SC 2297, which held that balancing the victim’s right to compensation against the insurer’s contractual limitations justified pay and recovery.

The Court preferred these later Supreme Court decisions over the earlier approach adopted in MAC Appeal No. 55/2014 on the basis of National Insurance Co. Ltd. v. Baljit Kaur.

The Tribunal correctly found that the driver had no valid driving licence, amounting to a breach of the insurance policy.

However, that breach did not warrant leaving the accident victim without an effective remedy against the insurer.

The subsequent Supreme Court decisions in Parminder Singh and K. Nagendra supported directing the insurer to satisfy the award initially, while preserving its right to recover the amount from the owner who was responsible for the policy violation.

Since these decisions were later in time than Baljit Kaur and the earlier decision in MAC Appeal No. 55/2014, the High Court followed the later governing principles and upheld the Tribunal’s pay-and-recover direction.

The appeal was dismissed for having no merit, and the Tribunal records were directed to be returned.